Full Judgment Text
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PETITIONER:
THE DELHI CLOTH AND GENERAL MILLS CO., LTD.
Vs.
RESPONDENT:
HARNAM SINGH AND OTHERS.
DATE OF JUDGMENT:
21/04/1955
BENCH:
BOSE, VIVIAN
BENCH:
BOSE, VIVIAN
JAGANNADHADAS, B.
SINHA, BHUVNESHWAR P.
CITATION:
1955 AIR 590 1955 SCR (2) 502
ACT:
Private International Law-Law applicable to contractual
obligations-English and Continental schools of thought-Lex
situs and "Proper Law" of contract-Partition of India-Post
partition debt- Action for recovery where lies-Analogy of
banking transactions and insurance claims-Place of primary
obligation-Debt, whether property-Sections 3 and 130 of
Transfer of Property Act-Evacuee property laws-Pakistan
(Protection of Evacuee Property) Ordinance, 1948 (XVIII of
1948)-Pakistan (Administration of Evacuee Property)
Ordinance (XV) 1949-Whether confiscatory in nature.
HEADNOTE:
During the years in question cloth was rationed at
Lyallpur, then a part. of the Punjab in undivided India, and
sales could only be made to government nominees and other
authorised persons. The plaintiffs, resident in Lyallpur,
were the government nominees, The
403
defendant company, with its head office at Delhi had a
branch office and mills at Lyallpur, and supplied the
plaintiffs with cloth from time to time in accordance with
the government quota through its branch manager at Lyallpur.
Their dealings lasted some 4 or 5 years prior to 1947.
In accordance with their contract the plaintiffs left a
security deposit of Rs. 1,000 with the defendant’s branch
manager at Lyallpur, and deposited further sums of money
with him from time to time at Lyallpur. The defendant
supplied the plaintiffs with their quota of cloth against
those deposits. There was thus a running account between
the parties in which the balance was sometimes in the
plaintiffs’ favour and sometimes against them; when against,
they paid the defendant interest on the "overdraft". The
goods had to be supplied at Lyallpur and all moneys were
paid there. The accounts were kept at Lyallpur though
copies were sent to the defendant’s head office at Delhi.
In 1947, when India was partitioned, Lyallpur was assigned
to Pakistan. The plaintiffs thereupon fled the country and
entered India as refugees. They settled in -Delhi and thus
became "evacuees" according to a Pakistan ordinance. At
that time there was a balance of Rs. 11,496-6-6 in the
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plaintiffs’ favour. They accordingly made a demand at Delhi
for payment of this sum and for return of their security
deposit.
In the meanwhile the Pakistan Government issued an ordinance
(1) vesting all evacuee property in the Custodian of Evacuee
Property in Pakistan (2) prohibiting the ’payment of money
to evacuees; and (3) requiring all moneys payable to, or
claimable by, evacuees to be paid to the Deputy Custodian of
Evacuee Property in Pakistan. Payments so made were to
operate as a discharge from further liability to the extent
of the payment. Breach of this law was punishable as an
offence.
The Deputy Custodian demanded payment from the defendant of
the moneys owing to the plaintiff. After some
correspondence and demur, the payment was made as required.
The defendant pleaded this as a defence to the action.
Held: (1) Lyallpur was the place of primary obligation
because under the contract the balance remaining at its
termination was to be paid there and not elsewhere,
accordingly the demand for payment made at Delhi before a
demand and refusal at Lyallpur was ineffective;
(2) That the elements out of which the contract to pay
arose were most densely grouped at Lyallpur, so Lyallpur was
the natural seat of the contract and the place with which it
had its closest and most real connection. Accordingly, the
"proper law of the contract" was the Lyallpur Law;
(3) Under the English doctrine also the situs of the debt
was Lyallpur; and so
404
(4) either way, the Lyallpur law applied
(5) as it obtained at Lyallpur at the time when performance
was due because a " proper law" intended as a whole to
govern a contract is administered as a "living and changing
body of law", accordingly, effect is given to any changes
occurring in it before performance is due;
(6) a "debt" being a chose in action is "property" within
the meaning of the Pakistan Ordinance and so,
(7) the money was rightly paid to the Deputy Custodian and
that operated as a good discharge and exonerated the
defendant from further liability.
But quaere, whether different conditions would not arise in
a case where no payment is made and the defendant has no
garnishable assets in Pakistan out of which the West Punjab
Government could realise the debt out of the defendant’s
property there.
(8)The provisions of the Pakistan ordinance relevant to the
case are not opposed to the public policy of India and so
can be relied on as a defence to an action of this nature.
Appeal allowed.
Mount Albert Borough Council v. Australasian Temperance,
etc. (1938 A.C. 224), Bonython v. Commonwealth of Australia
(1951 A.C. 201 at 219), Bank of Travancore v. Dhirt Ram (69
I.A. I at 8), New York Life Insurance v. Public Trustee
([1924] 2 Ch. 101 at 119), Rex v. Lovitt (1912 A.C. 212),
Joachinsons v. Swiss Bank Corporation ([1921] 3 K.B. 110),
Arab Bank v. Barclays Bank (1954 A.C. 495 at 531), Fouad
Bishara v. State of Israel ([1954] 1 A.E.R. 145). Re.
Chesterman’s Trusts [(1923] 2 Ch. 466 at 478), Be. Banque
Des Marchands De Moscou ([1954] 2 A.E.R. 746), Odwin v.
Forbes (1817 Buck 57) and Re. Munster ([1920] 1 Ch. 268),
referred to.
JUDGMENT:
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CIVIL APPFLLATE JURISDICTION: Civil Appeal No. 200 of
1954.
Under Article 133 of the Constitution and section 109 of the
Code of Civil Procedure from the Judgment and decree dated
the 6th December 1952, of the Circuit Bench of the Punjab
High Court at Delhi (Weston C.J. and Bhandari J.) in Regular
First Appeal No. 72 of 1952, arising out of the Judgment and
Decree dated the 14th day of April 1952, of the Court of
Subordinate Judge, Delhi in Suit No. 657 of 1950.
N. C. Chatterjee, (Tarachand Brijmohanlal and
B. P. Maheshwari, with him) for the Appellant.
R. S. Narula, for the Respondent,
405
1955. April 21. The Judgment of the Court was delivered by
BosE J.-The defendant appeals.
The plaintiffs were the partners of a firm known as Harnam
Singh Jagat Singh. Before the partition of India they
carried on the business of cotton cloth dealers at Lyallpur
which is now in Pakistan.
The defendant is the Delhi Cloth and General Mills Co. Ltd.
It is a registered company carrying on business at Delhi and
other places and has its head office at Delhi. One of the
places at which it carried on business before the partition
was Lyallpur.
The plaintiffs’ case is that they carried on business with
the defendant company for some three or four years before
1947 and purchased cloth from the company from time to time.
In the course of their business they used to make lump sum
payments to the defendant against their purchases.
Sometimes these were advance payments and at others the
balance was against them. When there was an adverse balance
the plaintiffs paid the defendant interest: see the
plaintiff Sardari Lal as P. W. 3.
On 28-7-1947 the account stood in the plaintiffs’ favour.
There was a balance of Rs. 79-6-6 lying to their credit plus
a deposit of Rs. 1,000 as security. On that day they
deposited a further Rs. 55,000 bringing the balance in their
favour up to Rs. 56,079-6-6.
The defendant company delivered cloth worth Rs. 43,583-0-0
to the plaintiffs against this amount at or about that time.
That left a balance of Rs. 11, 496-6-6. The suit is to
recover this balance plus interest.
The claim was decreed for Rs. 12,496-6-6 and this was
upheld on appeal to the High Court. The defendant appeals
here.
The defendant admits the facts set out above but defends
the action on the following ground. It contends that when
India was partitioned on 15-8-1947, Lyallpur, where these
transactions took place and where the money is situate, was
assigned to Pakistan.,. The plaintiffs fled to India at this
time and thus
406
became evacuees and the Pakistan Government froze all
evacuee assets and later compelled the defendant to hand
them over, to the Custodian of Evacuee Property in Pakistan.
The defendant is ready and willing to pay the money if the
Pakistan Government will release it but until it does so the
defendant contends that it, is unable to pay and is not
liable. The only question is, what are the rights and
liabilities of the parties in those circumstances? The
amount involved in this suit, though substantial, is not
large when compared with the number of claims by and against
persons in similar plight. The defendant itself is involved
in many similar transactions. A list of them appears in Ex.
D-11. Mohd Bashir Khan, D.W. 1, says that the total comes
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to Rs. 1,46,209-1-9. The defendant has accordingly chosen
to defend this action as a test case.
The further facts are. as follows. At the relevant period,
before the partition, cloth was rationed and its
distribution controlled in, among other places, the Punjab
where Lyallpur is situate. According to the scheme, quotas
were allotted to different areas and the manufacturers and
suppliers of cloth could only distribute their cloth to
retailers in accordance with those quotas, and dealers in
those areas could only import cloth up to and in accordance
with the quotas allotted to them. If the suppliers
themselves had a retail shop or business in a given area,
then the quota for that area was divided between the
supplier and a Government quota-holder or quota-holders
called the nominated importer or importers. The local
agency of the suppliers was permitted to import up to the
-portion of the quota allotted to it in that area and the
suppliers were obliged to give the balance of the quota to
the Government quota-holder or holders. The plaintiffs were
the Government quota-holders for Lyallpur and the defendant
company also carried on business there through the General
Manager of the Lyallpur Mills.
It is admitted that the defendant owns these mills but it
is a matter of dispute before us whether the mills are a
branch of the defendant company; but
407
whatever the exact status of the Lyallpur mills may be, it
is clear from the evidence and the documents that the
General Manager of these mills conducted the defendant’s
cotton business at Lyallpur.
It seems that the details of the cloth distribution scheme
for Punjab, in so far as it affected the defendant company,
were contained in a letter of the 24th October 1945 from the
Secretary, Civil Supplies Department, Punjab. That letter
has not been filed and so we do not know its exact contents
but reference to it is found in a series of letters written
by the defendant company from Delhi to the District Magis-
trate at Lyallpur. Those letters range in date from 3-1-
1946 to 19-4-1947: (Exs. P-5 to P-12). They are all in the
same form, only the figures and dates differ. It will be
enough to quote the first, Ex. P-5. It is dated 3-1-1946
and is from the Central Marketing Organisation of the
defendant company, the Delhi Cloth and General Mills Co.
Ltd. It is written from Delhi to the District Magistrate,
Lyallpur, and is as follows:
"The District Magistrate, Lyallpur.
Re: Cloth Distribution Scheme.
Dear Sir
Ref:Letter No. 15841-CL-(D)-45/8342 of 24th Oct. 1945 from
Secretary, Civil Supplies Deptt. Punjab Govt., Lahore.
Kindly note that we have allotted 28 bales for your
district for the month of January 1946. Out of this a
quantity of 18 bales will be despatched to our Retail stores
in your district/State and the balance of 10 bales will be
available for delivery to your nominated importer.
We shall be obliged if you kindly issue instructions to
your nominated importer to collect these goods from us
within 15 days of the two dates for delivery fixed, namely
by the 20th of January and 5th of February 1946
respectively. It may be noted that the first half quota
will lapse in case delivery is
52
408
not taken by you by the former date and the second half will
lapse if not taken by the latter date.
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Yours faithfully,
D.C. & Gen. Mills Co.,
Ltd.
In each case a copy was sent to the plaintiffs marked as
follows:
"Copy to nominated importer:-
Jagat Singh Harnam Singh,
Cloth Merchants,
Lyallpur".
The Indian Independence Act, 1947 was passed on 18-7-1947
and the district of Lyallpur was assigned to Pakistan subject
to the award of the Boundary Commission. Then followed the
partition on 15-8-1947 and at or about that time the
plaintiffs fled to India. This made them evacuees according
to a later Ordinance. But before that Ordinance was
promulgated the Assistant Director of Civil Supplies, who
was also an Under Secretary to the West Punjab Government,
wrote to the defendant’s General Manager at Lyallpur (the
General Manager of the Lyallpur Cloth Mills) on 17-2-1948
and told him that-
"The amount deposited by the non-Muslim dealers should
not be refunded to them till further orders". (Ex. D-1).
The defendant did all it could, short of litigation, to
protest this order and -to try and get it set aside. Its
General Manager at Lyallpur wrote letters to the Assistant
Director of Civil Supplies on 14-4-48, 9-8-48 (Exs. D-2 and
D-4) , 23-4-49 (Ex. D-7) and 6-6-49 (Ex. D-8), but the
replies were unfavourable. On 30-4-48 the Assistant
Director said that "in no case" should the sums be refunded
(Ex. D-3) and on 1-1 1-48 directed that these amounts
should be deposited with the Custodian of Evacuee Property
(Ex. D-5). This was in accordance with an Ordinance which
was then in force. Later, on 8-11-48, the General Manager
received orders from the Deputy Custodian that the moneys
should be deposited with the Deputy Custodian(Ex. D-6) and
on 23-6-49 these orders were repeated by the Custodian
(EX.D-9).
Meanwhile, the plaintiffs, who by then had shifted
409
to Delhi, made a series of demands on the defendant in Delhi
for payment. These are dated 3-1-49 (Ex. P.W. 4/4), 27-1-
49 (Ex. P.W. 4/1), 11-3-49 (Ex. P.W. 4/3) and 26-3-49 (Ex.
P.W. 4/2). The defeddant’s attitude is summed up in its
letter to the plaintiffs dated 12-2-49 (Ex. P-3). The
defendant said that its had received orders from the West
Punjab Government, through the Assistant Director of Civil
Supplies, not to make any refunds without the orders of the
West Punjab Government.
On 15-10-1949 the Ordinance of 1948 was replaced by
Ordinance No. XV of 1949 (Ex. D-26) but that made no
difference to the law about evacuee funds and properties.
On 4-7-1950 the plaintiffs served the defendant with a
notice of suit (Ex. P-14). This notice was forwarded to
the defendant’s General Manager at Lyallpur by the
defendant’s Managing Director in Delhi urging the General
Manager to try and obtain the sanction of the West Punjab
Government for payment of the money to the plaintiffs; and
on 27-7-1950 the defendant wrote to the plaintiffs saying-
"We confirm that the sum of Rs. 11,496-6-6 and Rs. 1,000
are due to you on account of your advance deposit and
security deposit respectively with our Lyallpur Cotton
Mills, Lyallpur, and the sum will be refunded to you by the
said Mills as soon as the order of prohibition to refund
such deposits issued by the West Punjab Government and
served upon the said Mills is withdrawn or cancelled, and
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that your claim shall not be prejudiced by the usual time
limit of three years having been exceeded’ (Ex. P-4).
The defendant’s reply did not satisfy the plaintiffs, so
they instituted the present suit on 16-12-1950.
After the suit, the defendant’s Managing Director wrote
personally to the Joint Secretary to the Government of
Pakistan on 2-4-1951 but was told on 21-4-1951 that the
matter had been carefully examine and that the money must
be deposited with the Custodian (Ex. D-25). A second
attempt was made 30-4-1951 (Ex. D-24) and the Joint
Secretary was again approached. Soon after, an Extraordine
410
Ordinance was promulgated on 9-5-1951 (Ex. D-27) exempting
"cash deposits of individuals in banks" from the operation
of the main Ordinance. But the Joint Secretary wrote on
2-6-1951 that this did not apply to private debts and
deposits and again asked the defendant to deposit the Money
with the Custodian (Ex. D-23). Finally, the Custodian
issued an order on 6-11-1951 directing that the deposits be
made by the 15th of that month, "failing which legal action
will have to be taken against you". (Ex. D-10). The money
was deposited on 15-11-1951 on the last day of grace (Ex.
D-12).
The first question that we must determine is the exact
nature of the contract from which the obligation which the
plaintiffs seek to enforce arises. The sum claimed in the
suit, aside from the interest, is made up of three items:
(1)Rs. 79-6-6 outstanding from a previous account;
(2)Rs. 11,496-6-6 being the balance of a sum of Rs. 55,000
deposited on 28-7-1947; and
(3) Rs. 1,000 as security.
The three items appear to be linked up but we’ will, for
the moment, concentrate on the largest, the deposit of Rs.
55,000. Both sides have spoken of it as a "deposit"
throughout but we will have to examine its exact nature
because deposits are of various kinds and it will be
necessary to know which sort this was before we can apply
the law.
Unfortunately, the evidence is meagre and scrappy, so we
have been obliged to piece much disjointed material together
to form an intelligible pattern. It is admitted that the
distribution of cloth in this area was controlled by the
Government of Punjab (in undivided India) at all material
times. It is also admitted that the plaintiffs were, what
were called, "Government nominees" for Lyallpur. In the
plaint the plaintiffs also called themselves the "reserve
dealer". This term has not been explained but the use of
these words and the words "nominated importer", indicates
that the plaintiffs occupied a privileged ]position. The
letters (Exs. P-5 to P-12), on
411
which the plaintiffs relied very strongly, also point to
that; Ex. P-5, for example, shows that the defendant was
obliged to give 10 bales out of a quota of 28 for that area
to the plaintiffs under the orders of the Punjab Government
and could only keep 18 for its own retail stores in the
month of January 1946. In April the defendant was allowed
to keep all 28 but in July the distribution was 35: 25 in
the plaintiff’s favour. In September, November (1946) and
April 1947 it was half and half. In February and March 1947
it was 10 : 26 and 29 : 26 for the plaintiffs and the
defendant’s stores respectively.
Now, ordinarily, a privilege has to be paid for and it
seems that the price of this privilege was (1) payment of a
security deposit of Rs. 1,000 and (2) payment of a second
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deposit against which cloth was issued from time to time in
much the same way as a banker hands out money to a customer
against deposits of money in a current- account, only here
the payments were issues of cloth instead of sums of money.
We draw this inference from what we have said above and from
the following facts:
(1) Both sides have called the payment a "deposit" in their
pleadings;
(2) The plaintiffs speak of receiving goods "against this
deposit" (paragraph 3 of the plaint) and Mohd. Bashir Khan
(D.W. 1) of delivery being made "against this advance";
(3) The plaintiff Sardari Lal (P.W. 3) says that the
parties have been carrying on dealings for 3 or 4 years and
that "advances used to be made to the mills from time to
time. Sometimes our balance stood at credit";
(4) Sardari Lal says that when their balance was on the
debit side, they paid the defendant’s interest but the
defendant paid no interest when the balance was in the
plaintiffs’ favour. (This is the position when there is an
overdraft in a bank);
(5) There was a balance of Rs. 79-6-6 standing in the,
plaintiffs’ favour when the deposit of Rs. 55,000 was made;
(6) The plaintiffs said in their letter (Ex. P.W. 4/1)
412
to the defendant that they had a "current account" with the
defendant in which a sum of Rs. 11,496-6-6 was in "reserve
account". This figure of Rs. 11 ,496-6-6 is made up by
including the old balance of Rs. 79-6-6 in this account;
(7) In their letter Ex. P-14 the plaintiffs said that they
had "deposited" money in the plaintiffs’ account at Lyallpur
"as reserve dealers", against that they received goods
leaving a balance of Rs. 11,496-6-6. Again, this figure
includes Rs. 79-6-6.
All this shows that the payment of Rs. 55,000 was not just
an advance payment for a specified quantity of goods but was
a running account very like a customer’s current account in
a bank. The only matter that can be said to indicate the
contrary is the fact that the defendant has listed this
money in Ex. D-11 under the head "Purchaser’s advance". But
the mere use of this term cannot alter the substance of the
transactions any more than the mere use of the word
"deposit". The fact that the parties choose to call it this
or that is, of course, relevant but is not conclusive, and
in order to determine the true nature of a transaction it is
necessary to view it as a whole and to consider other
factors. But in this case we need not speculate because the
plaintiffs have themselves explained the sense in which the
term "Purchasers advance account" is used. In their
statement of the case which they filed here, they say-
"The defendants maintained a ’Purchasers advance account’
in their books at Delhi. The plaintiffs used to pay the
defendants advance amounts against which cloth was supplied
and the balance had to be adjusted periodically".
But the banking analogy must not be pushed too far. The
stress laid by the parties on the terms "Government
nominees", "nominated importer" and Preserve dealer", both
in the correspondence and in the pleadings and evidence,
suggests that the defendant was dealing with the plaintiffs
in their capacity of "Government nominees" and that, in its
turn, imports the condition that the dealings would stop the
moment the plaintiffs ceased to occupy that pri-
413
vileged position. As we have seen, the import of cloth was
controlled by the Punjab Government at all relevant times
with the result that the defendant could not sell to anybody
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it pleased. The sales had to be to the Government nominees.
Therefore, if Government withdrew their recognition, the
defendant would not have been able to sell to the plaintiffs
any longer and it is fair to assume that the parties did not
contemplate a continuance of their relationship in such an
eventuality. But, as this was not a definite contract for
the supply of a given quantity of goods which were to be
delivered in instalments but a course of dealings with a
running account, it is also reasonable to infer that the
parties were at liberty to put an end to their business
relationship at anytime they pleased by giving due notice to
the other side and in that event whichever side owed money
to the other would have to pay. But, either way, the place
of performance would, in these circumstances, be Lyalipur.
We say this because all the known factors were situate in
Lyallpur. The plaintiffs were the Government nominees for
Lyallpur and they were resident there. The defendant
carried on business there and the goods had to be delivered
at Lyallpur and could not be deliverer] elsewhere, and so
performance was to be there. The accounts were kept at
Lyallpur, and though copies appear to have been forwarded to
Delhi from time to time, the books were situate there and
the Lyallpur office would be the only place to know the up-
to the minute state of the accounts. In the circumstances,
it is reasonable to assume, as in the case of banking and
insurance (matters we shall deal with presently), that on
the termination of the contract the balance was to be paid
at Lyallpur and not elsewhere. That localises the place of
primary obligation.
This also, in our opinion, imports another factor. The
defendant in Delhi would not necessarily know of any change
of recognition by the Lyallpur authorities. The
correspondence with the Collector indicates that the
Government nominee cleared the goods from the defendant’s
Lyallpur godowns under the orders of the District
Magistrate. If, therefore, the
414
nominee was suddenly changed, intimation of this fact would
have to be given to the defendant at Lyallpur and not at
Delhi, otherwise there would be a time lag in which the
defendant’ Lyallpur office might easily deliver the goods to
the plaintiffs as usual despite withdrawal of the
recognition. Everything therefore points to the fact that
the notice of termination would have to be given at Lyallpur
and the obligation to return the balance would not arise
until this notice of termination was received. That
obligation would therefore necessarily arise at Lyallpur.
The plaintiffs’ learned counsel argued very strongly that
the defendant’s Lyallpur business was carried on from Delhi
and that the accounts were kept there, that there was no
branch office at Lyallpur and that Lyalipur had no
independent local control of the business. He relied on the
letters written by the defendant to the District Magistrate,
Lyallpur, about the allotments of quotas (Exs. P-5 to P-12)
and also on Ex. D-7, a letter written by the defendant’s
General Manager at Lyallpur to the Deputy Custodian of
Evacuee Property at Lyallpur in which he says that a
" Complete list showing the list of all non-Muslims
falling under item (3) with the amount to be paid has been
asked for from our Head Office and will be submitted as soon
as received".
Counsel contended that the Lyallpur people bad so little to
do with the accounts that they were notable to supply even a
list of the persons who dealt with them. they had to find
that out from Delhi.
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These matters should have been put to the defendant’s
witnesses. Ex. D-7 was written in reply to a letter from
the Deputy Custodian of Evacuee Property. That letter is
Ex. D-6 and in it the Deputy Custodian refers to some
earlier correspondence with the Under Secretary to the West
Punjab Government, Lahore, which has not been filed. When
we turn to the list that was eventually supplied from Delhi
(Ex. D-1 1) we find that it relates to accounts from
allover Pakistan such as, Multan, Peshawar, Lahore, Sialkot,
Rawalpindi and even Karachi and Sukkar. Obviously, a local
office like the Lyallpur office would not be in
415
a position to -supply that sort of information. The
defendant’s accountant at Lyallpur, Sewa Ram (P.W. 4), says
that-
"Purchasers’ deposits at Lyallpur were not recorded in the
books of the defendant at Delhi but statements used to be
despatched from there to Delhi. An account book was
prepared from statements received from Lyallpur. That book
is known as ’Reference Book’ ".
Presumably, that would also be the practice of the other
branch offices, so the head office would be the only place
from where a general overall picture (which appears to be
what was asked for) could be obtained.
Now, the plaintiffs resided at Lyallpur at all relevant
times and the defendant carried on business there through a
local General Manager. We do not know where the contract
was made but we do know that the plaintiffs contracted in a
special capacity that was localised at Lyallpur, namely as
the Government nominees for Lyallpur. We know that the
goods were to be delivered at Lyallpur and could not be
delivered anywhere else. We know that there was a running
account and that that account was kept at Lyallpur, and we
have held that the ’debt" did not become due till the
defendant was given notice at Lyallpur that the business
relationship between the parties had terminated. The
termination came about because of acts that arose at
Lyallpur, namely the assignment of Lyallpur to the newly
created State of Pakistan and the flight of the plaintiffs
from Lyallpur which made further performance of the primary
contract impossible. The only factors that do not concern
Lyallpur are the defendant’s residence in India and the
demands for payment made in Delhi. The fact of demand is
not material because the obligation to pay arose at the date
of termination and arose at Lyallpur, but if a demand for
payment is essential, then it would, along the lines of the
banking and insurance cases to which we shall refer later,
have to be made at Lyallpur and a demand made elsewhere
would be ineffective. On these facts we hold that the
elements of this contract, that is to say, the contract
53
416
out of which the obligation to pay arose, were most densely
grouped at Lyallpur and that that was its natural seat and
the place with which the transaction had its closest and
most real connection. It follows from this that the "proper
law of the contract", in so far as that is material, was the
Lyallpur law.
We have next to see when notice ’to close the account and a
demand for return of the balance was made and where. The
plaintiff Jagat Singh (P.W. 5) says that he made a written
demand in October 1947. But the earliest demand we have on
record is Ex. P.W. 4/4 dated 3-1-1949. It is
understandable that the plaintiffs, who had to flee for
their lives, would have no copies of their correspondence,
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but it is a matter for comment that the demand which is
filed (Ex. P.W. 4/4) does not refer to an earlier demand or
demands. The defendant was asked to produce all the
correspondence because the plaintiffs had lost their own
files. The defendant produced all we have on record and no
suggestion was made that anything had been suppressed.
Consequently we are not prepared to accept the plaintiffs’
statement and we hold that there was no demand before 3-1-
1949.
Another point is that the earlier demand, even if made,
could not have been made at Lyallpur. The plaintiff Jagat
Singh says he made the demand to the defendant’s Managing
Director. He resides in Delhi and the plaintiffs had by
then fled from Pakistan. Therefore, the demand could not
have been made at Lyallpur, and apart from those demands,
there is no other notice of termination, so, technically,
the defendant would have been justified in declining to pay
on the strength of a demand made in Delhi. The same defect
attaches to Ex. P. W. 4/4. However, we are fortunately
absolved from the need to base on so technical a ground.
Now at the date of the demand the Pakistan Ordinance (Ex.
D-26) was in force and under it the defendant was prohibited
from paying the money to the plaintiffs who were evacuees
according to Pakistan laws. The defendant was directed,
instead, to deposit the money with the Deputy Custodian of
Evacuee
417
Property. This was done on 15-11-1951 (Ex. D-12) and the
deposit was made along with other similar deposits.
We now have to determine the legal liabilities which arise
out of these facts. This raises complex questions of
private international law, and two distinct lines of thought
emerge. One is that applied by the English Courts, namely,
the lex situs; the other is the one favoured by Cheshire in
his book on Private International Law, namely, the "proper
law of the contract".
The English approach is to treat the debt as property and
determine its situs and then, in general, to apply the law
that obtains there at the date when payment is due. But the
difficulty of the English view is that they have different
sets of rules for ascertaining the situs, with the result
that the situs shifts from place to place for different
purposes, also that it is determined by intention. Thus, it
can be in one place for purposes of jurisdiction and in
others for those of banking, insurance, death duties and
probate. The situs also varies in the cases of simple
contract debts and those of speciality.
That a debt is property is, we think, clear. It is a chose
in action and is heritable and assignable and it is treated
as property in India under the Transfer of Property Act
which calls it an "actionable claim": sections 3 and 130.
But to give it position in space is not easy because it is
intangible and so cannot have location except notionally and
in order to give it notional position rules have to be
framed along arbitrary lines.
Cheshire points out in his book on Private International
Law, 4th edition, pages 449 to 451 that the situs rule is
not logical and leads to practical difficulties when there
is a succession of assignments because it is not possible to
fix the situation of a debt under the situs rule in one
place and only one place. Speaking, of that Cheshire,
quoting Foote, where Foote says that the assignment of a
chose in action arising out of a contract is governed by the
"proper law of the contract" paraphrases Foote thus at page
450-
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418
"If we understand him correctly, the appropriate law is not
the ’proper law’ (using that expression in its contractual
sense) of the assignment, but the proper law of the original
transaction out of which the chose in action arose. It is
reasonable and logical to refer most questions relating to a
debt to the transaction in which it has its source and to
the legal system which- governs that transaction. One
undeniable merit of this is that, where there have been
assignments in different countries, no confusion can arise
from a conflict of laws, since all questions are referred to
a single legal system".
The expression the "proper law of the contract" has been
carefully analysed by Cheshire in Chapter VIII of his’ book.
In Mount Albert Borough Council v. Australasian Temperance
and General Mutual Life, Assurance Society(1) Lord Wright
defined it at page
240 as
"that law which the English or other Court is to apply in
determining the obligations under the
contract",
that is to say, obligation as contrasted with performance.
Lord Wright drew the distinction between obligation and
performance at page 240. In a later case, Lord Simonds
described it as
"the system of law by reference to which the contract was
made or that with which the transaction has its closest and
most real connexion". Bonython v. Commonwealth of
Australia(2).
Cheshire sets out the definition given by some American
Courts at page 203 and adopts it:
"It is submitted that, at any rate with regard to the
question of valid creation, the proper law is the law of the
country in which the contract is localized. Its
localization will be indicated by what may be called the
grouping of its elements as reflected in its formation and
in its terms. The country in which its elements are most
densely grouped will represent its natural seat the country
with which the contract is in fact most substantially
associated and in which lies its natural seat or centre of
gravity".
(1) 1938 A.C. 224,
(2) 1951 A.C. 201, 219.
419
This involves two considerations. The first is whether the
proper law is to be ascertained objectively or whether
parties are free to fix it subjectively by ranging over the
world and picking out whatever laws they like from any part
of the globe and agreeing that those laws shall govern their
contract. Cheshire points out at page 202 that "the
subjective theory may produce strangly unrealistic results".
It is also obvious that difficulties will arise if the
contract is illegal or against public policy according to
the laws of the country in which it is sought to be enforced
though lawful according to the laws of the country which the
parties choose: see Lord Wright in Mount Albert Borough
Council v. Australasian Temperance, etc. Society(1) at page
240. Cheshire prefers the view of an American Judge which
he quotes at page 203-
"Some law must impose the obligation, and the parties have
nothing whatsoever to do with that, no more than with
whether their acts are torts or crimes".
The contract we are considering is silent about these
matters. There is no express provision either about the law
that is to obtain or about the situs. We have therefore to
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examine the rules that obtain when that is the case.
The most usual way of expressing the law in that class of
case is to say that an intention must be implied or imputed.
In the Bank of Travancore v. Dhrit )Ram(2), Lord Atkin said
that when no intention is expressed in the contract the
Courts are left to infer one by reference to considerations
where the contract was made and how and where it was to be
performed and by the nature of the business or transaction
to which it refers. In the Mount Albert Borough Council
case(1), Lord Wright put it this way at page 240-
"The parties may not have thought of the matter at all.
Then the Court has to impute an intention, or to determine
for the parties what is the proper law which, as just and
reasonable persons, they ought or would have intended if
they had thought about the question when they made the
contract".
(1) 1988 A.C. 224.
(2) 69 I.A. 1, 8.
420
But , to us, it seems unnecessarily artificial to impute an
intention when we know there was none, especially in a type
of case where the parties would never have contracted at all
if they bad contemplated the possibility of events turning
out as they did. In our opinion, what the Courts really do,
when there is no express provision, is to apply an objective
test, though they appear to regard the intention subjec-
tively, and that is also Cheshire’s conclusion at page 201
where, after reviewing the English decisions, he
says-
"In other words, the truth may be that the judges, though
emphasising in unrestricted terms the omnipotence of
intention, in fact do nothing more than impute to the
parties an intention to submit their contract to the law of
the country with which factually it is most closely
connected".
If driven to a choice, we would prefer this way of stating
the law but we need not decide this because, so far as the
present case is concerned, the result is the same whether we
apply the proper law of the contract or the English rules
about the lex situs. It may be that in some future case
this Court will have to choose between these two views but
the question bristles with difficulties and it is not
necessary for us to make the choice here. All we wish to do
here is to indicate that we have considered both and have
envisaged cases where perhaps a choice will have to be
made.
We gather that English judges fall back on the lex situs
and make rules for determining the position of a debt for
historical reasons. Atkin, L. J. said in New York Life
Insurance Company v. Public Trustee(1) that the rules laid
down in England are derived from the practice of
ecclesiastical authorities in granting administration
because their jurisdiction was limited territorially.
"The ordinary had only a jurisdiction within a particular
territory, and the question whether he should issue letters
of administration’ depended upon whether or not assets were
to be found within his
(1) [1924] 2 Ch. 101, 119.
421
jurisdiction, and the test in respect of simple contracts
was: Where was the debtor residing?........ the reason why
the residence of the debtor was adopted as that which
determined where the debt was situate was because it was in
that place where the debtor was that the creditor could, in
fact, enforce payment of
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the debt".
(See also Dicey’s Conflict of Laws, 6th edition, page
303). The rules, therefore, appear to have been arbitrarily
selected for practical purposes and because they were found
to be convenient.
But despite that the English Courts have never treated them
as rigid. They have only regarded them as primafacie
presumptions in the absence of anything express in the
contract itself: see Lord Wright’s speech in Mount Albert
Borough Council case (1) at page 240. Also, many
exceptions have been engrafted to meet modern conditions.
Atkin, L. J. draws attention to one in New York Life
Insurance Company v.Public Trustee(2) at page 120 where he
says"therefore, cases do arise where a debt may be enforced
in one jurisdiction, and the debtor, being an ordinary
living person, resides elsewhere".
So also Lord Wright in Mount Albert -Borough Council case(1)
at page 240-
"It is true that, when stating this general rule, there are
qualifications to be borne in mind, as for instance, that
the law of the place of performance will prima facie govern
the incidents or mode of performance, that is, performance
as contrasted with obligation".
and at page 241 he says-
"Again, different considerations may arise in particular
cases, as, for instance, where the stipulated performance is
illegal by the law of the place of performance".
And so also Lord Robson in Rex, v. Lovitt(3) at page 220-
"It cannot mean that for all purposes the actual situation
of the property of a deceased owner is to be
(1) 1938 A.C. 224. (2) [1924] 2 Ch. 101, 119.
(3)1912 A.C. 212.
422
ignored and regard had only to the testator’s domicil, for
executors find themselves obliged in order to get the
property at all to take out ancillary probate according to
the locality where such property is properly recoverable,
and no legal fiction as to its ’following the owner’ so as
to be theoretically situate elsewhere will avail them".
And he says at page 221 that these rules are only "for
certain limited purposes".
In banking transactions the following rules are now
settled: (1) the obligation of a bank to pay the cheques of
a customer rests primarily on the branch at which he keeps
his account and the bank can rightly refuse to cash a cheque
at any other branch: Rex v. Lovitt(1) at 219, Bank of
Travancore v. Dhrit Ram(2) and New York Life Insurance
Company v. Public Trustee(3) at page 117; (2) a customer
must make a demand for payment at the branch where his
current account is kept before he has a cause of action
against the bank: Joachimson v. Swiss Bank Corporation(4)
quoted with approval by Lord Reid in Arab Bank Ltd. v.
Barclays Bank(5). The rule is the same whether the account
is a current account or whether it is a case of deposit.
The last two cases refer to a current account; the Privy
Council. case (Bank of Travancore v. Dhrit Ram(2)) was a
case of deposit. Either way, there must be a demand by the
customer at the branch where the current account is kept, or
where the deposit is made and kept, before the bank need
pay, and for these reasons the English Courts hold that the
situs of the debt is at the place where the current account
is kept and where the demand must be made.
This class of case forms an exception to the rule that a
debtor must seek his creditor because, though that is the
general rule, there is nothing to prevent the parties from
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agreeing, if they wish, that that shall not be the duty of
the debtor and, as Lord Reid explains in the Arab Bank
case(5) at page 531, a contract of current account
necessarily implies an
(1) [1912] A.C. 212. (2) 69 I.A. 1, 8 and 9.
(3) [1924] 2 Ch. 101, 119. (4) [1921] 3 K.B. 110.
(5)[1951] A.C. 495, 531.
423
agreement that that shall not be the bank’s duty, otherwise
the whole object of the contract would be frustrated.
We have stressed the word "primarily" because the rules we
have set out relate to the primary obligation. If the bank
wrongly refuses to pay when a demand is made at the proper
place and time, then it could be sued at its head office as
well as at its branch office and, possibly, wherever it
could be found, though we do not decide that. But the
reason is that the action is then, not on the debt, but on
the breach of the contract to pay at the place specified in
the agreement: see Warrington, L. J. at page 116 and Atk
in, L. J. at page 121 of New York Life Insurance Co. V.
Public Trustee(1).
Now the rules set out above are not confined to the
business of banking. They are of wider application and have
also been applied in insurance cases: Fouad Bishara Jabbour
v. State of Israel(2) and New York Life Insurance Co. v.
Public Trustee(1).
Similar considerations obtain in England when an
involuntary assignment of a debt is effected by garnishment.
Cheshire has collected a list of English cases at pages 460
to 463 of his Private International Law from which we have
quoted above. He sums up the position at page 461 thus-
"It is difficult to state the rule with exactitude but it
is probably true to say that a debt is properly garnishable
in the country where, according to the ordinary usages of
business, it would normally be regarded as payable".
But when all is said and done, we find that in every one of
these cases the proper law of the contract was applied, that
is to say, the law of the country in which its elements were
most densely grouped and with which factually the contract
was most closely connected. It is true the judges purport
to apply the leX Situs but in determining the situs they
apply rules (and modify them where necessary to suit
changing modern conditions) which in fact are the very rules
(1) [1924] 2 Ch. 101.
(2) [1954] 1 A.E.R. 145,
424
which in practice would be used to determine the proper law
of the contract. The English Judges say that when the
intention is not express one must be inferred and the rules
they have made come to this: that as reasonable men they
must be taken to have intended that the proper law of the
contract should obtain. The other view is that the
intention does not govern even when express and that the
proper law must be applied objectively. But either way, the
result is the same when there is no express term. The
"proper law," is in fact applied and for present purposes it
does not matter whether that is done for the reasons given
by Cheshire or because the fluid English rules that centre
round the lex situs lead to the same conclusion in this
class of case.
That, however, raises a further question. Which is the
proper law? The law that obtains when the contract was made
and the obligation fashioned or the law in force at the time
when performance is due? Here again, we think the answer is
correctly given by Cheshire at page 210, quoting Wolff’s
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Private International Law, page 424, and Be. Chesterman’s
Trusts(1):
"A proper law intended as a whole to govern a contract is
administered as ’a living and changing body of law’ and
effect is given to any changes occur. ring in it before
performance falls due".
This is what the English Courts did in New York Insurance
Co. v. Public Trustee(2), Re. Banque Des Marchands De
Moscou(3), Fouad Bishara Jabbour v. State of Israel(4), and
Arab Bank Ld. v. Barclays Bank(5). They were all cases in
which the law changed because of the outbreak of war and
where performance became impossible because of local
legislation. In the last two cases, the debts vested in the
Custodian because of local legislation and payment by the
debtor to the Custodian was regarded as a good discharge of
the debt. The position in those two cases was just what it
is here.
(1)[1923] 2 Ch. 466, 478. (2) [1924] 2 Ch. 101.
(3) [1954] 2 A.E.R. 746. (4) [1964] 1 A.E.R. 115.
(5)[1954] A.C. 495, 529.
425
Counsel argued that as Lyallpur was part of India, when the
contract was made, the Indian law must be applied and that
no different intention can be imputed to the parties. But
that is not the law, as we understand it, whether we apply
the "proper law" or the situs rules. The proper law will be
the law at Lyallpur applied as a living and changing whole,
and this would have been the case even if India had not been
divided, because each State had the right to make different
local laws even in undivided India, as witness the different
money lending laws and the cloth and grain control orders:
indeed this very case is an illustration of that, for the
controls which gave rise to this very contract were not
uniform throughout India. But even apart from the "proper
law" the decision of the Privy Council in Arab Bank Ld. v.
Barclays Bank(1) and of the Queens Bench Division in Fouad
Bishara Jabbour v. State of Israel (2 ) negatives this
contention when ail intention has to be imputed or a clause
in the contract implied.
It is necessary, however, to bear in mind that, under
modern conditions, choses in action arising out of contract
have two aspects: (1) as property and (2) as involving a
contractual obligation for performance. The property aspect
is relevant for purposes of assignment, administration,
taxation and the like; the contractual aspect for
performance. In the present case, we are primarily
concerned with the property aspect because the Pakistan
Ordinance regards debts as property and vests all evacuee
property in the Custodian and requires every person holding
such property to surrender it to the Custodian on pain of
penalties prescribed by the Ordinance, and section 11(2)
states that-
"Any person who makes a payment under subsection (!)-shall
be discharged from further liability to pay to the extent of
the payment made".
The payment was made and that, in our opinion, exonerated
the defendant from further liability. Such payment would
operate as a good discharge even under the English rules:
see Fouad Bishara Jabbour v.
(1) [1954] A.C. 495, 529.
(2) [1994] 1 A.E.R. 145
426
State of Israel(1) at page 154 where a number of English
authorities are cited, including a decision of the Privy
Council in Odwin v. Forbes(2). That was also the result of
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the decisions in the following English cases, which are
similar to this, though the basis of the decisions was the
situs of the debt and the multiple residence of
corporations: Fouad Bishara Jabbour v. State of Israel(1),
Be Banque Des Marchands De Moscou(3) and Arab Bank Ld. v.
Barclays Bank (4).
The same result follows from the decision of the Judicial
Committee in the Bank of Travancore Ltd. v. Dhrit Ram(5)
where Lord Atkin said-
"When consideration is being given to the question, what
law did the parties intend to govern the contract? it seems
proper to bear in mind that the promisor is a bank
incorporated under Travancore law with, apparently, some
connection with the State of Travancore, and governed as to
its business by any law of Travancore that may affect
banking........
The only difference between that case and this is that at
the date of the deposit in this case there was no difference
between the laws of Punjab and Delhi on the present point.
But they could have differed even if India had not been
divided, as we have just pointed out. The English cases
are, however, in point and we can see little in principle to
distinguish them from this case.
The learned counsel for the plaintiffs-respondents argued
that even if the law is what we have said, the Pakistan
Ordinance does not apply to this case because "a cash
deposit in a bank" is excluded. The argument was based on
the definition of "property" in section 2(5) of the
Ordinance. But this is not a cash deposit in a bank as
between the plaintiffs and the defendant. It is a debt
which the defendant owes, or owed, to the plaintiffs, and
the same definition states that "property" means, among
other things, any debt or actionable claim The portion of
the definition which speaks of a "cash deposit in a bank"
means that such a deposit is not to be treated as
(1) [1954] 1 A.E.R. 145. (2) 1817 Buck. 57.
(3) [1954] 2 A.E.R. 746. (4) [1954] A.C.. 495, 529,
(5)69 I. A. 1, 9.
427
"property" for the purposes of the Ordinance as between the
bank and the customer who owns or controls the deposit. We
hold, therefore, that whether the proper law of the contract
applies or the English law of situs in a case of this kind,
the defendant is exonerated because, the debt being
"property",- the Ordinance divested the plaintiffs of
ownership in it and vested the debt in the Custodian and at
the same time interfered with the obligation for performance
by providing that payment to the Custodian shall operate as
a discharge of the obligation.
But we wish to emphasize that we decide this because
payment was in fact made to the Custodian and that we
express no opinion about what would happen in a case where
there is no payment and the defendant has no garnishable
assets in Pakistan out of which the West Punjab Government
could realise the debt by attachment of the defendant’s
property. Different conclusions might possibly arise in
such a case.
Lastly, it was urged that the Pakistan Ordinance is a penal
law and is confiscatory in character, therefore, no domestic
tribunal will recognise it or give effect to it. That
proposition is, in any event, too widely stated, but we are
unable to condemn this law as opposed to the public -policy
of this country be,cause we have exactly the same kind of
laws here, as do other civilised countries which find
themselves in similar predicament or at the outbreak of war;
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see Arab Bank Ltd. v. Barclays Bank(1) and also Fouad
Bishara Jabbour v. State of Israel(2) and Re. Munster(3)
where a like argument was repelled. We hold that this
legislation is not confiscatory.
The same rules apply to the item of Rs. 79-6-6 and to the
deposit of Rs. 1,000 as security.
The appeal succeeds. The decrees of the lower Courts are
set aside. A decree will now be passed dismissing the
plaintiffs’ claim, but in the special circumstanoes of this
case the parties will bear their own costs throughout.
(1) 1954 A.C. 495. (2) [1954] 1 A.E.R. 145, 157,
(3) [1920] 1 ch.268.
428